The biggest test since World War II is that the economy is facing a ‘catastrophe’

Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), attends the United Nations Climate Change Conference (COP26) on November 3, 2021 in Glasgow, Scotland, UK.

Yes Herman | Reuters

As policymakers and business leaders gathered at the World Economic Forum in Davos, Switzerland, the International Monetary Fund warned against “geopolitical divisions”.

In a blog post ahead of this week’s event, Kristalina Georgieva, the IMF’s managing director, said the world economy was facing its “biggest test since World War II. And inflation has been rising for decades.

Rising food and energy prices around the world are putting pressure on households, while the central bank is tightening monetary policy to curb inflation, putting more pressure on indebted countries, companies and households.

When combined with the growing volatility in financial markets and the continuing threat of climate change, the IMF says the world is facing a “potential confluence of disasters”.

“Yet our ability to respond is being hampered by another consequence of the war in Ukraine – the increasing risk of geopolitical fragmentation,” Georgieva said.

“Tensions over trade, technology standards and security have been rising for many years, slowing growth এবং and confidence in the current global economic system.”

He added that trade policy uncertainty alone would reduce global GDP by about 1% in 2019, according to IMF research, and observations from DC-based organizations also indicate that about 30 countries have restricted trade in food, energy and other key commodities.

Georgieva warned that further isolation would have huge global costs, affecting people across the socio-economic spectrum, and said that technological fragmentation alone could cause a loss of 5% of GDP for many countries.

Carmine de CBO, global chairman and CEO of consultancy giant YY, told CNBC on Monday that the economy has “moved to a centralized stage” in talks between big business leaders in Davos.

“The economy is the top conversation – inflation is a big concern and you can see some of the leading indicators are starting to slow down,” he said.

Although corporate deal volume has slowed, the DCBO says the EY is still showing signs of “quite strong activity” and business leaders are still looking at options to transform their business, with prices falling in the sector amid strong demand.

“The transition that companies are going through – in terms of technology, in terms of supply chain and supply chain positioning, and supply chain risk mitigation – is still going on and we’re doing a lot around that,” the DBO said.

The solution

To address growing divisions, the IMF first called on the government to reduce trade barriers to reduce deficits and reduce the prices of food and other commodities, while diversifying exports to improve economic resilience.

“Not only the country but also the companies need to diversify their imports to secure the supply chain and the outstanding benefits of global integration business,” said Georgieva.

“While geo-strategic considerations will drive some sourcing decisions, they will not lead to isolation. Business leaders have an important role to play in this.”

Second, the IMF has called for cooperative efforts to tackle debt, as about 60% of low-income countries currently have significant debt weaknesses and will need to be restructured.

“Without decisive cooperation to reduce their burden, the situation will be worse for both them and their lenders, but the return on debt stability will attract new investment and encourage inclusive growth,” Georgieva said.

“Therefore, the Common Framework of the Group of Twenty for debt treatment needs to be improved without delay.”

Third, the IMF has called for the modernization of cross-border payments, saying that inefficient payments have hindered inclusive economic growth. The company estimates that an average cost of 6.3% of an international remittance payment means about $ 45 billion is moved annually to middlemen and away from low-income families.

“Countries can work together to create a global public digital platform – a new payment framework with clear rules – so that everyone can send money at minimum cost and maximum speed and security. It can connect different types of money, including the central bank. .

Finally, the IMF called for an immediate end to the “gap between ambition and policy” on climate change, arguing for a broader approach to green change that combines carbon pricing and renewable energy investment with compensation for those adversely affected by climate change.

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